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Volatility Ahead With Quadruple Witching

The third Friday of every month is always a tricky day to trade, as there are multiple options expiries. Today is Quadruple witching which refers to the simultaneous expiry of derivatives in stock index futures, stock index options, stock options, and single stock futures. For European equity traders, the FTSE100 has an expiry at 10:15 GMT and the DAX 30 March contract expiry is set for 12:00 noon.

During the overnight session the Bank of Japan left its key short-term interest rate unchanged at -0.1% and as expected maintained the target for the 10-year Japanese government bond yield at around 0% during its March meeting.

In yesterday's Forex analysis I described a trading scenario where shorts below the hourly Ichimoku cloud could manage their risks by placing their stops above the weekly range around 109.40-109.50 as a break of these levels would be significant. This idea still stands and the USDJPY is heading lower to test the lower bounds of the range around the 108.00 price level. The ActivTrader sentiment is showing that traders are more bearish now with a reading of 71%. If this were to be a bull flag, buyers of the USDJPY would start buying at the lower levels of the pattern, but if this is distribution before a fall, a break and retest of the 108.00-108.40 zone would be solid resistance for a continuation lower.

Yesterday the markets were mostly range-bound and only repriced around the open and close of the sessions. Today we have already seen European futures follow Asian markets slightly lower and following a sharp sell-off in the major technology companies and UsaTec into the close of Thursday’s NYC session.

Sovereign bond yields and coronavirus is still the dominating themes within the markets but as was reported yesterday the European Medicines Agency gave the green light for the Oxford Astrazeneca vaccine and Italy, France, Germany, and Spain plan to restart administering the vaccine following their pause in vaccination rollout. Yesterday Germany recorded the biggest rise in new coronavirus cases in two months and in France President Macron has indicated many regions including Paris will be in lockdown.

Oil prices declined below $60 per barrel on Friday for the sixth day in a row and were on track for their biggest weekly fall since September. This is largely down to profit-taking following such a long run-up after the EIA this week predicted that demand would not reach pre-covid levels before 2023. But also the further weakening of demand as the coronavirus puts a cap on large areas of the globe re-opening fully. $58 proved to be supportive at the close of last night and it will be interesting to see if this is a case of buying the dip today, or whether the selling continues after a slight pullback.

We have broken the March 2021 lows where liquidity obviously was waiting so that does now mean if we test those levels again there will be fewer buyers and that the shorts may be able to push for the mid $50 range.

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